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Selling a Property in Spain

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Selling a Property in Spain Powered By Docstoc
					   What you need to know about

    Property
    In Spain
Selling a Property in Spain


     www.myadvocatespain.com
Legal Note - It should be remembered that the application of Spanish law varies considerably according to region and the circumstances
of each individual and so this report can be treated as a general guide only and not as a substitute for qualified legal advice regarding
any particular situation. Responsibility for acting on foot of this guide alone is entirely personal and no liability can be accepted by
myAdvocate Spain. For a link to where you can get advice on your specific situation from expert legal practitioners in Spain please see
the end of the guide.




                                                Practical Issues when
                                              Selling a Property in Spain

How times have changed! Only a few years ago who would have thought that the property landscape
would have changed so much. Instead of queues to get into promoters' sales cabins along the coast for
the 'opportunity' to buy a 'dream-home in the sun', the reality now could have changed more. Many
have found themselves in the unfortunate position of having overstretched themselves, perhaps having
lost their job in Spain or in their home country and now unable to pay the mortgage on their Spanish
property.

That said, this is not the situation that everyone finds themselves in and depending on the location and
the quality of the property, there is still demand, albeit less. It would seem that the appeal of living in
the sun has not gone away but that the headiness of the recent boom is still in the process of working
itself through.

Should you be in the situation that you wish to sell your property in Spain this guide will cover the
main points that you need to consider – from estate agents to lawyers and from taxes to utility bills. The
aim is to aid anyone starting from scratch who perhaps isn't sure where to start and isn't aware of the
pitfalls to avoid.



                                                Advertising the Property


Anyone who has spent any time in Spain will have seen the 'Se Vende' signs protruding at various
angles from houses and apartment windows. These 'For Sale' signs signify a property that is for sale
privately by the owner. Many local Spanish people tend to at least try this method in effort to avoid
estate agency fees. That is the main benefit from going down this route but on the negative side only
those that would pass the property will be aware that it is for sale.

Another possibility that has proved popular in more recent times has been to advertise the property over
the internet. Of course this has the potential to reach a much larger audience though you are depending
upon the effectiveness of the website chosen to market the property. Some of these companies offer
their services for free while others charge.



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Of course another, more traditional method would be to contract a local estate agent to market the
property. As previously mentioned the biggest downside of this is probably the fact that the agent will
charge a fee though it is worth pointing-out that this will normally be a portion of the sales price and
therefore they have to be successful in order to benefit.

During the boom-time it was possible for estate agent to charge as much as 18% of the sales price! As
a result of the current slowdown and competition from internet based marketing models mentioned
previously, margins have come back down to earth and it is quite normal to be quoted a fee of
anywhere between 3% and 5%.

One thing to be careful about when dealing with an estate agent is the possibility that they will request
that you sign an exclusivity contract i.e. that you will not contract any other estate agent or company to
market your property. While you can, without doubt, negotiate a lower commission rate if they are
given exclusive rights to market the property this has to be balanced against the benefit to be gained by
being able to market the property across a number of agencies and internet sites. Any contract, be it
exclusive or otherwise should clearly state the commission fee the agent will charge for successfully
marketing the property.

One of the main benefits of contracting a local estate agent is the possibility of them being available to
show the property when you may be out of the country. They will also know the best forms of local
marketing such as which papers to place adverts in. But you would be advised to ask them what forms
of marketing they will be using to market your property to get a better idea.


                                      The Closing & Payment

Once an offer has been made and accepted on the property then typically the buyer's lawyer will carry-
out due diligence checks on the property, and assuming no issues arise, the next step is to prepare and
sign what is known as a 'deposit contract'. This involves a deposit being paid by the purchaser which
effectively grants an exclusive right to purchase with a date being fixed for the purchase to be finalized.

Should the sale not go through due to a change of heart on the part of the purchaser then their deposit,
often 10% of the purchase price, is lost. Should the failure of the property transfer be caused by the
vendor then they are obliged to pay the purchaser 20% i.e. double the amount of the deposit.

Once again assuming that everything happens smoothly the next important date is 'the closing'. This is
a meeting that will include any or all of the following: the purchaser, the vendor, their legal
representatives, the bank representatives and the notary. The notary is required as the purchase deed is a
public document and requires a notary to formally witness it.

At the closing stage it will be necessary to sign the public deeds of ownership though it is sufficient for


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your lawyer to be present if they have full power of attorney. Payment is made typically with a bank
guaranteed cheque though it may be possible to use the notary's escrow account. The public deeds will
contain a detailed description of the property as well as contain the details of the purchaser, vendor, the
price, form of payment and any other relevant conditions.

Your lawyer will advise you on all aspects of the process so as to be sure that you are not in danger of
being defrauded or somehow losing the property or signing terms that are disadvantageous to you.



                             Taxes, Mortgages and Other Charges


A transfer of property in Spain can function differently from other jurisdictions and so it is important to
be aware of the assumptions that the law makes with regards to responsibilities and liabilities for
payments of taxes and charges relating to property ownership.

The main taxes and charges connected with property ownership include the following: IVA or ITP
(VAT on new or second-hand homes) Plusvalía (Capital Gains Tax), IBI (Council Tax), Comunidad
Charge (If in a shared building or urbanisation), utility bills and, of course, any mortgage on the
property.


                                             IVA and ITP

Both of these taxes are equivalent to VAT – IVA (Impuesto de Valor Añadido) and ITP (Impuesto de
Transmisión Patrimoniales) - and are payable upon the purchase of a property.

Where the property is new and is being purchased from a company (typically a constructor or
promoter) then the tax payable is IVA and is standardised at a rate of 8% across the country. If the
property is second-hand then the tax payable is ITP and the rate is typically between 7% and 8% across
the country as, differently from IVA, ITP is set by the regional government rather than at a state level
and so varies a little as between each region.

When buying a new property IVA is paid on the purchase price to the developer or promoter when
buying the property. It is then the responsibility of the developer or promoter to make their IVA returns
to Hacienda (Spanish Tax System) in the usual way.

If a second-hand property is being purchased then it is the responsibility of the purchaser to pay this tax
directly (using form 600) in the local tax offices within one month of signing the deeds.


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                                                 Plusvalía

This tax, similar to Capital Gains Tax is ordinarily the responsibility of the vendor as they have
benefited from the increase in the value of the property since they previously bought it. This is not
written in stone however and should the two parties come to an agreement it can become the
responsibility of the purchaser to discharge this liability. In fact, where the vendor is a non-resident this
liability actually shifts to the purchaser.

Of course if the vendor is resident and reinvests the funds in another primary residence then there is no
liability for plusvalía.

If however, the vendor is a non-resident then the purchaser is obliged to retain 3% of the purchase price
and pay this to the tax office. Evidence of payment is demonstrated with a stamped copy of form 211
and the vendor can then deduct the same amount from the purchase price.


                                                     IBI


It may be the case that the vendor has already paid the local Council Tax or IBI (Impuesto de Bienes
Inmuebles) for the full year, yet will only be in the property for a portion of that time. If this is the case
then upon facilitation of receipts for payment of the tax, a vendor will be entitled to add this to the price
of the property. In any case the purchaser will be anxious to see receipts for the previous and current
years IBI as they are otherwise liable.


                                     Discharge of the Mortgage

If the property was owned for a substantial period of time then it is fairly likely that upon sale, any
mortgage can be discharged. However, even though the bank receives a cheque from the buyers that
covers the full amount of the mortgage debt, this does not itself remove the mortgage charge from the
property registry and this is the responsibility of the vendor (assuming that the purchaser is not going to
take-over the mortgage).

The process involves having the bank issue a certificate that the debt has been cancelled. Once the
certificate is issued a notary will draft an 'escritura' or formal legal public document to evidence the
said cancellation of the debt. Once presented to the local tax office (currently this process is exempt
from tax but it must be presented) it then remains simply to inscribe the 'escritura' in the property
registry at the town hall. The cost is normally in the region of several hundred Euros all told.


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                                 Utility Bills and La Comunidad

Standard procedure requires the vendor to produce the latest utility bills that show that payment of
these bills is up-to-date. The notary will usually request a certificate directly from the Community of
Owners that payment of community fees is current and that there are no fees outstanding.

In order to end your liability for the utility bills relating to the property it is necessary to transfer
responsibility to the new owner. To do so it is simply necessary to contact the utility company and
provide them with the new name and either NIE or passport number of the new owner. A bill with
account number details etc will be necessary as well.

In the worst case scenario the new owner will have to call in to the local offices of the relevant utility
company with their identification and a bill to prove that it is a legitimate transfer though this is
unlikely.

Assuming that payments of the community fees are up-to-date then the next payment due will be sent
to the new owners of the property.
In all cases make sure to terminate all standing orders and it is probably a good idea to set-up a postal
redirection which can be to any new address including outside Spain.

Download all of the reports in this series to get all of the information you need to protect your
wealth when dealing with property in Spain. Just some of the topics dealt with:



                                Which legal checks on a property
                                    are vital to avoid problems


                                      The step-by-step process
                                  of buying a property in Spain


                                The rights and responsibilities of
                                     property owners in Spain


                                  Typical ploys to watch out for
                                     to avoid being defrauded.


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                                Property taxes you are liable
                            for and those the other party pays!


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                Protect Your Wealth When selling or buying property in Spain
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